Lease vs. Buy: Which car financing option fits your budget?

There’s no doubt that buying a car is a big expense and, therefore, requires thorough budget and financial planning on the part of the buyers. If not done right, you might end up in a lot of trouble and find it difficult to make ends meet in your daily life. Because let’s be clean, having a car is not everything, being an expensive commodity, you should only invest when your pocket allows it.

Also, when it comes to the ‘cost of car ownership,’ many seem to limit the term to the asking price but go way beyond. Apart from the obvious car financing costs (downpayment and monthly payments), there are a bunch of other expenses that need to be considered. For example -

• Car registration
• Insurance (CTPL  and comprehensive insurance)
• Fueling
• Maintenance and service
• Repair

You can explore the complete list of all associated costs to car ownership in detail here. Thus, prepare yourself both mentally and financially to be a car owner. Once you have made up your mind, are through with the cost, and even shortlisted the car you want to bring home, it’s time to discuss what route you’d like to take - Buy or Lease. Coz let’s be frank: with the rising cost of cars and car ownership in general, it has become crucial to determine the financing options that best suit your lifestyle and budget.

In this article, we’ll be exploring both car leasing and car buying in detail, and by the end, hopefully, you’ll know the right path for you. So, get into the topic of lease vs. buy.

Understanding car leasing

What is car leasing?

It is a contract that allows you to use a car for a set period (usually between two to four years) against a defined sum, which is usually less compared to the amount required to finance the same car.

Other essential details -

• In addition to long-term car leasing, which usually lasts for two to four years, there is the option for a short-term car lease as well; however, it might cost you more.
• Car leasing is usually cheaper compared to financing the same car.
• Most car lease companies ask you to pay a security deposit while signing the lease.
• At the end of the leasing period, the car needs to be returned to the dealership.
• If you are willing, you can also purchase the car after the completion of the leasing period.

Also Read: Should you finance a car? Weighing the pros and cons

Advantages of leasing a car

Like most car financing options, car leasing too has its set of pros and cons. However, from a broader spectrum, leasing a car far outweighs the cons - especially for someone who needs a car and, at the same time, is on a tight budget and trying to save money. Still not convinced? Here’s a list of pros of leasing a car in the Philippines.

Tax reduction

One of the most significant advantages of leasing a car in the Philippines is the reduction in tax payments. How? When you lease a car, you are paying VAT (value-added tax), receipts of which can be used to lower your tax payments.

Not to worry about car maintenance

If you are a car owner and someone close to you owns a car, then you must be aware of the scheduled visits to the service center for regular maintenance. The process involves an oil change, tire pressure checking, brake maintenance, air filter checking, and much more. All this requires money, and if the car is high maintenance, it can be a bit expensive. Not to mention, if a car part requires replacement, the bills will be even higher. However, all this doesn’t concern you if you have leased a car, as all these hardships are handled by the leasing company.

Wide car selection

The best part about car leasing is that you have a wider selection range than when you buy a car in the latter scenario; the options are limited according to your budget, but the same is not the case with leasing. Here, you are not paying to purchase the car; your spending is only limited to usage.

No need for an upfront payment

Unlike buying a car, where you need to make at least 10% to 20% down payment upfront, here there’s no need to do so. Thus making it a great option for individuals with small pockets.

Lease to own

It is a great option for someone who wishes to buy a car but can’t make a firm decision. Lease or rent to own is a scenario where you lease the car at first and later have the option to buy the same car. The leasing period acts as a time wherein you can check out the car thoroughly and then make a long-term commitment.

Disadvantages of car leasing

Time to discuss the flip side of leasing a car. It is equally important to know the disadvantages before signing a lease contract, as we don’t want you to get any unpleasant surprises later.

Mileage restriction

One of the biggest drawbacks of leasing a car is the mileage restriction that tags along. Most car lease contracts in the Philippines come with a clause of around 10,000 kilometers per year mileage restriction; however, the figure may vary depending on the company. What if you drive over the limit? Well, in that case, you’ll be required to pay a fee for every extra kilometer driven. And before you know it, you’ll end up paying more than what you would have paid if you had brought the car.

It is not yours

You must keep in mind that the car is not yours; it is a leased vehicle that will be returned after a defined period. When asked about the vehicle in question, you can’t say it is yours, as it belongs to the leasing company. On the other hand, when you own a car, you can take pride in saying so outright.

Access to limited service centers

The car leasing company will direct you to where you can get the car serviced, unlike when you own the car and make your own decisions. However, this can be a hassle if the accredited service center is far away, and if it’s not, then you are in luck. Either way, it is best to consult the leasing company and make sure it works out for you well.

Repairs are on you

If there is any repair work that needs to be done on the leased car due to a major or minor accident, then that’s on you fully. Now, the leased unit is most likely insured; however, there could be some penalties charged to you by the company. Further, if the company requires you to get the repair work done at the authorized dealership, the cost would be substantial.

Also, if the car has been loaned out for a long time, there is a possibility that the maintenance duty comes into play. But again, it all depends on the contract signed.

Tips for leasing a car

If you are considering leasing a car, here are some tips to follow -

• Do thorough research: Just like the way you’ll do proper research and put effort into buying a car, in the same way, do the hard work when leasing a car. Try finding the car that best suits your needs and a lease contract that does not put much burden on you.
• Remember the car is not yours: There is no need to get emotionally attached to the vehicle, it is not yours to keep. Once the contract ends, move on, and don’t worry about what’ll happen to the unit afterward.
• A new & better car is just a contract away: If you are getting bored of the leased car or if it feels outdated, you always have the option to move on to the next best option.
• Be careful: Yes, it is not your car, but till the contract is valid, it is your responsibility. Therefore, make sure to keep it in good condition.

What is car buying?

In contrast to car leasing, buying a car is a different story altogether. Here, you choose a car of your choice (considering your budget and needs) and purchase it - either by paying cash or financing it via a loan. Unlike leasing, this option gives you full ownership of the vehicle, meaning it is yours forever (until you decide to resale), and you have the freedom to make modifications as you please.

While paying for a car fully in cash is a rare occurrence, it does happen. However, most Filippionos choose to take loans to finance their purchase, and this can be through a bank, car dealership, credit union, friends & family. Either way, buying a car through a loan requires you to put some amount as a downpayment, with the rest of the amount getting paid through monthly payments.

Advantages of buying a car

Buying a car has several benefits, some of which include -

It is yours to keep

When you buy a car, in cash or via loan, it is yours and only yours to keep. Just pay off the loan, drive it for years to come, and make modifications as you please.

Drive as much as you like

Unlike car leasing, there is no mileage restriction when it comes to buying a car. The owner has the freedom to drive as much as he/she likes.

Disadvantages of buying a car

There are a few drawbacks to owning a car, including -

Depreciation

One of the biggest enemies of a car owner is depreciation, so much so that the car starts losing its value immediately after coming out of the showroom.

Also Read: Why your car loses value over time (and how to slow it down)

Repossession risk

If you have purchased the car via a loan, there is a risk of repossession until the loan is fully paid off.

Also Read: Car repossessed? Here’s how you can finance your next purchase

Financial commitment
When you buy a car in cash, it impacts your long-term financial planning, and there’s also the risk of getting stuck in an emergency with insufficient funds. On the other hand, in the case of a loan, you are entitled to make monthly payments for a set period.

Leasing vs Buying A one-on-one comparison

After discussing car buying and leasing in detail separately, it is time now to put the two against each other. This will allow you to make an informed decision.

Parameters	Leasing	Buying
Cost	No upfront payment is required.	A downpayment is required (usually 10-20% of the car’s value).
Monthly Payment	Typically lower than loan payments.	High monthly payments, but at the same time contribute towards ownership.
Ownership	You do not own the car until the end of the leasing period unless you decide to buy it.	After paying off the loan fully, you are the vehicle owner.
Maintenance & Repair	Most lease contracts include a maintenance package.	You are responsible for the car’s well-being at all times.
Modification	You can not make any modifications to the leased vehicle.	There are no restrictions on modifying the car.
Mileage restriction	You are required to follow mileage guidelines to avoid penalties.	Drive as much as you wish; there’s no cap and no penalty.

Leasing or Buying - The right pick for you?

It all depends on the concerned individual's personal preference, financial situation, and lifestyle. Here is a list of scenarios that will help you pick between leasing and buying -

Choose to lease if …	Choose to buy if …
You prefer lower monthly payments and no upfront payment.	You prefer to make a long-term investment.
You don’t mind a mileage restriction.	You don’t like any mileage restriction.
You prefer driving the latest cars.	You prefer full car ownership and like to make modifications.
You don’t like to worry about car maintenance costs.	You like to build assets and like to eventually eliminate monthly payments.

Bottom line

Both car leasing and buying come with their own set of advantages and disadvantages. There are no wrong and right options here; it depends on the individual's personal choice and financial circumstances. While leasing is more affordable and convenient, buying offers freedom and builds assets.

Also Read: From loan to keys: Your complete guide to car financing in the Philippines